Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

13. INCOME TAXES

Loss before provision for income taxes consisted of the following for the periods indicated (in thousands):

	December 31,			December 31,
	2023			2024
Domestic	$	(71,600	)	$	(11,896	)
International		(3,831	)		(13	)
Total	$	(75,431	)	$	(11,909	)

The components of the Company’s income tax provision were as follows for the periods indicated (in thousands):

	December 31,			December 31,
	2023			2024
Current:
Federal	$	—		$	—
State		73			37
Foreign		213			(79	)
Total current income tax expense		286			(42	)
Deferred:
Federal		—			—
State		—			—
Foreign		(1,153	)		(5	)
Total deferred income tax benefit		(1,153	)		(5	)
Total income tax benefit	$	(867	)	$	(47	)

The reconciliation of the Federal statutory income tax provision to the Company’s effective income tax provision is as follows for the periods indicated (in thousands):

	December 31,			December 31,
	2023			2024
Income tax benefit at statutory rates	$	(15,839	)	$	(2,501	)
Warrant liabilities		(482	)		(177	)
Stock compensation		1,949			883
Other permanent differences		3			—
Foreign rate differential		(95	)		(1	)
State income taxes, net of federal tax benefit		(2,052	)		(311	)
Other		(431	)		404
Prior year true-up adjustments		2,827			(757	)
Valuation allowance		13,253			2,413
Total income tax benefit	$	(867	)	$	(47	)

The Company’s effective tax rate was 1.15% and 0.40% for the years-ended December 31, 2023 and December 31, 2024, respectively. The effective tax rate for 2023 was principally due to tax expense incurred on the operations of the Company's UK business, non-deductible executive stock compensation expense, and the change in fair value of the warrant liabilities. The effective tax rate for 2024 was principally due to tax benefits incurred related to the operations of the Company's UK business, the change in fair value of the warrant liabilities, and true-up adjustments recorded in connection with the Company’s filed tax returns, primarily offset by the impact of non-deductible executive stock compensation expense and changes in the valuation allowance.

The Company’s deferred tax assets and liabilities as of the dates indicated were as follows (in thousands):

	December 31, 2023			December 31, 2024
Deferred tax assets:
Allowance for credit losses	$	31		$	35
Inventory Reserve		1,671			325
Other Accruals		1,402			320
Accrued Bonus		—			618
Net operating loss carryforwards		53,361			58,459
Stock options		2,239			567
Interest expense limitation		11,317			11,058
Intangibles (definite life)		9,422			8,909
Intangibles (indefinite life)		19,749			19,669
Other		2,060			2,211
Total deferred tax assets before valuation allowance		101,252			102,171
Valuation allowance		(99,477	)		(101,890	)
Net deferred tax assets		1,775			281
Deferred tax liabilities:
Fixed assets		(22	)		—
Prepaid expenses		—			(281	)
Intangibles		(1,759	)		—
Net deferred tax liabilities		(1,781	)		(281	)
Deferred tax liability, net	$	(6	)	$	(0	)

The Company has temporary differences due to differences in recognition of revenue and expenses for tax and financial reporting purposes, principally related to net operating losses, inventory, depreciation, and other expenses that are not currently deductible or realizable. As of December 31, 2023, the Company had federal net operating loss carryforwards of approximately $222.2 million, $31 million of which, if not utilized, begin to expire in 2034 and approximately $191 million can be carried forward indefinitely but are limited to 80% of Federal taxable income. The Company also has approximately $128.1 million apportioned state and local NOLs. As of December 31, 2024, the Company had federal net operating loss carryforwards of approximately $241.7 million, $31 million of which, if not utilized, begin to expire in 2034 and approximately $210.6 million can be carried forward indefinitely but are limited to 80% of Federal taxable income. The company also had state and local net operating losses of $150.3 million that expire between 2035 and 2044, depending on the state, if not used. The Company’s ability to utilize its NOL carryforwards may be limited pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), if the Company has had a change in ownership of more than 50% of its capital stock over a three-year period pursuant to Section 382 of the Code. These complex changes of ownership rules generally focus on ownership changes involving stockholders owning directly or indirectly 5% or more of a company’s stock, including certain public “groups” of stockholders as set forth by Section 382 of the Code, including those arising from new stock issuances and other equity transactions.

In response to COVID-19, various governments worldwide have enacted, or are in the process of enacting, measures to provide relief to businesses negatively affected by the pandemic. On March 27, 2021, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law in the U.S. The CARES Act provides relief to U.S. corporations through financial assistance programs and modifications to certain payroll and income tax provisions. In connection with the CARES Act and other financial relief measures worldwide, the Company received $1.3 million of payroll related credits, of which $0.2 million has been utilized during the year ended December 31, 2024, with the remaining credits to be utilized over the next two years. The payroll related credits are recorded in other current liabilities within the consolidated balance sheet.

The Company regularly assesses the realizability of its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due primarily to the Company’s history of net operating losses, the Company believes it is more likely than not its federal, state and foreign deferred tax assets will not more likely than not be realized as of December 31, 2024. Accordingly, the deferred tax assets have been fully offset by a valuation allowance.  The valuation allowance for the year ending December 31, 2024 increased by $2.4 million.

The Company’s major taxing jurisdictions are New Jersey, New York, Florida, Texas, Pennsylvania, Tennessee, Virginia, California, and the United Kingdom. The Company files a U.S. Consolidated income tax return as well as tax returns in certain foreign jurisdictions. The Company is subject to examination in these jurisdictions for all years since inception. Fiscal years outside the normal statute of limitations remain open to audit due to tax attributes generated in the early years which have been carried forward and may be audited in subsequent years when utilized. The Company is not currently under examination for income taxes in any jurisdiction. The Company may be subject to audits covering a variety of tax matters by taxing authorities in any taxing jurisdiction where the Company conducts business. While the Company believes that the tax returns filed, and tax positions taken are supportable and accurate, some tax authorities may not agree with the positions taken. This can give rise to tax uncertainties which, upon audit, may not be resolved in the Company’s favor. As of December 31, 2023 and 2024, the Company has not recorded any tax contingency accruals for uncertain tax positions.